As the alternative assets industry continues to grow, Preqin is launching an initiative examining the Future of Alternatives. In conjunction with key industry participants, we take a five-year look into the future to see where the market will be, what changes fund managers are planning for and how investors plan to invest in 2023.
This contribution is provided by Patrick Adefuye, Head of Real Assets at Preqin.
Seventy percent of respondents to Preqin’s June 2018 investor survey have indicated that they expect allocations to infrastructure to increase as a proportion of their assets under management (AUM) by 2023. This is the second highest proportion among all alternative asset classes – behind only private equity (76%) – signalling the continued growth of this relatively young asset class.
Investors will face challenges to their portfolios in the coming years, including a possible market correction off the back of a historically long bull market, rising interest rates and inflation and market volatility. Infrastructure investments have qualities that mitigate this, such as inflation protection, diversification and a lack of correlation to macroeconomic conditions, as well as a stable and often protected income. The global need for infrastructure investment is a driver of this growth, with major economies such as Canada, US, France and the UK all having indicated future plans for infrastructure development from which investors might reasonably expect opportunities to arise. Another factor in the growth of infrastructure is the changing global energy landscape which will continue apace in the next five years with a continued focus on decarbonization and an increasing reliance on renewable sources.
This expected increase in infrastructure spending bodes well for fund managers in the asset class. A record $77bn was raised by infrastructure fund managers in 2017; a noteworthy aspect of the infrastructure fundraising market in recent years is the greater degree of concentration of capital among fewer managers. In 2018 to date, $69bn has been raised by just 45 funds, with an average fund size of $1.6bn – higher than both the $775mn and $806mn averages in 2016 and 2017 respectively, and more than double the $581mn average in 2015. The most experienced managers benefit from this, exemplified by Global Infrastructure Partners which successfully raised $15.8bn for Global Infrastructure Partners III in 2017, more than 3x the size of the fund’s predecessor.
Download your copy of the Preqin: The Future of Alternatives here.